Must read: global markets, British pound, Royal Mail

Markets remain volatile and there are problems for individual companies too. Our head of investment analyses latest developments.

GLOBAL MARKETS 

European markets have started the final session of the week on a positive note, with the major bourses jumping around 1%. Housebuilders and financial stocks are among the top gainers on the FTSE 100, which is trading higher but below the key 7,000 handle.

The gains follow a rally on Wall Street with the Dow rallying more than 800 points despite US inflation data topping expectations, prompting expectations of more hawkish action from the Federal Reserve. 

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Focus now shifts to third quarter earnings season stateside which kicks off with the banks at lunchtime as improved net interest margins weigh up against a decline in dealmaking and broader investment banking activity. 

Positive momentum from Wall Street, helped to lift Asian markets, which have ended the week on a high. China’s annual inflation rate rose to 2.8% in September in line with expectations but higher versus the previous 2.5% reading. Food prices rose sharply with a jump in the cost of pork.

POUND STERLING 

The pound is trading close to one-week highs, while UK government bonds are rallying as Chancellor Kwasi Kwarteng returns early from the IMF gathering in Washington amid speculation that the Treasury is planning further tax cut U-turns to calm the market turmoil. 

Concerns about high levels of borrowing by the government to fund its fiscal stimulus plans sparked chaos in the markets post the mini-budget, with a major bond market sell-off and a slump in the pound. The Chancellor is clearly looking for ways to prove to the market that he is in fact focused on fiscal discipline, which requires either cutting reversing some of his tax cut plans. 

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Meanwhile, it is the final day of the Bank of England’s emergency intervention, with the spotlight on the gilt market and pension funds next week once those support measures are removed. The big question is whether pension funds have done enough over last fortnight in terms of fundraising, reducing leverage, and increasing capital buffers. If they have, this will sharply reduce the risk of financial contagion from any further volatility in the bond market.

Although the Bank of England’s intervention is set to end today, its mandate to ensure financial markets’ stability remains, suggesting that support could be reinstated if the dysfunction resumes.

ROYAL MAIL 

Shares in Royal Mail - now called International Distributions Services (LSE:IDS) - have plunged double digits after the postal service said it could cut 6,000 jobs by the end of August next year. Employees have been on strike this week amid a dispute over pay and working conditions with further industrial action planned for October and November. 

The postal service has been facing a perfect storm of heavy strike action, a structural decline in letter demand, a fading pandemic parcel boom, pressures from cost inflation and an onslaught of dynamic competitors to the market.

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While its international business GLS has been robust, its domestic service has struggled with Chairman Keith Williams warning in July that the business is losing £1 million a day. Investors have had a tough time with shares down 65% year-to-date. The past month has been particularly challenging with the share price down almost 30%.